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The prosecution of former Brocade HR vice president Stephanie Jensen for options backdating seems to be on the South Beach diet. Prosecutors disclosed they planned to drop four charges from the original indictment, after earlier dismissing two others, so that she will only face two counts at trial. Earlier, the company's CEO, Gregory Reyes, was convicted on ten counts related to his role in the backdating, including securities fraud and conspiracy. Jensen was indicted along with Reyes in August 2006, but U.S. District Court Judge Charles Breyer granted her severance motion, and trial is set to begin with jury selection on November 19.

In its Pretrial Conference Memorandum (available below), the government disclosed that it planned to drop three counts of making a false filing with the SEC and one count of securities fraud. It earlier dismissed two mail fraud counts that included a right of honest services component, no doubt to avoid a defense argument relying on the Fifth Circuit's decision in U.S. v. Brown rejecting the application of the right of honest services theory when the defendant believes she is assisting the company. The remaining charges are conspiracy and falsification of Brocade's books and records. The latter charge is the narrowest in the original indictment, requiring no intent to defraud or mislead, only an intent that the corporate books be inaccurate.

In its memorandum, the federal prosecutors outlined their basic theory for Jensen's liability: "Jensen oversaw and directed the process by which the earlier date was selected, presented to Reyes, and recorded in the company’s corporate records. She also oversaw and directed the process by which other personnel records were falsified. Reyes signed committee minutes falsely stating that the decision to grant options had been made on the earlier date when the price was lower."

Whether the pared down case succeeds remains to be seen. The severance allows Jensen to claim that she acted on Reyes' orders and that he was responsible for the proper recording of the options grants -- an "empty chair" defense. She can also argue that she was unaware that the backdating was not properly recorded in Brocade's books and records -- an ignorance defense. Unlike the CEO of a company, who can be expected to understand the requirements for SEC financial reporting, a lack of knowledge claim from a lower-level executive may have a greater chance of succeeding. The conviction of Reyes for the same conduct certainly is not helpful to the defense, but the cases may play out differently so prior performance is not an indication of future returns, as the mutual fund companies like to warn.

With the government's case-in-chief set to start on November 26, Reyes' sentencing originally scheduled for that day will be postponed until after the conclusion of the second case. The Jensen trial may take as long as two weeks, although the government claims it may complete its case-in-chief in three or four days. Remember the rule of thumb whenever a litigator gives an estimate for how long it will take to put on a case: multiply by two. (ph)